New kid on the block, by John Perry

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Almos are the popular answer for cash-strapped councils wanting to upgrade their homes without hiving them off. But their powers are limited compared with housing associations. John Perry explains how a little bit more freedom could go a long way

The number of council houses managed at 'arm's length' has just caught up with the total that has been transferred to housing associations. So the transfer option, the measure that was set to change the face of council housing 17 years ago, now has a rival – the arm's-length management organisation. Almos are already delivering a better housing service, are starting to achieve the decent homes target, and are rated as highly as housing associations by tenants.

But housing associations could also argue that their management of transferred homes – half their stock – is now a much more mature and stable business, well able to deliver decent homes and a lot more besides. And, of course, they would be right.

Almos would naturally like to have the same stability and business freedoms as associations. But do they simply want to become a different sort of housing association? The answer from the National Federation of Almos is an emphatic 'no'. Even so, they are well aware that associations have many opportunities – accompanied of course by risks – that are not available to them (see box).

Some of these advantages are already pencilled in for Almos, but most will come – or not – from a review of their financial freedoms by the Office of the Deputy Prime Minister. Almos are making their own case, in the shape of a joint study by the National Federation of Almos, the Chartered Institute of Housing and HouseMark. This article draws from the study, to be finalised soon.

Two of the ten freedoms listed in the box are already theoretically available to Almos. They can bid for social housing grant to build houses, and their authorities can now borrow prudentially. To make real use of these, though, they will need more of the other freedoms. What chance do they have of getting these?

One challenge that some Almos have already taken on is to take control of their own finances, by running the council's housing revenue account. More would like to do so, but the advantages of greater day-to-day control only come fully into their own if linked with another freedom – from revenue subsidy. At first glance, getting out of the subsidy system might seem a strange objective. After all, it is still worth around £1bn each year.

But much of this is recycled cash, which means that council housing finances are inextricably connected, in masses of detail, with the Exchequer – and without that much net gain. Opting out of the subsidy system would mean greater predictability for HRA finances, and the ability to make more choices about where and how to spend, including being able to plan to spend spare revenue over a period of years.

The way to gain such freedom might be to do a deal with the Treasury to get rid of enough old debt to enable the remainder to be paid from rents, without having to be topped up with subsidy. This would start to put Almos in a similar position to stock transfer associations, whose past debt is paid off as part of the transfer deal. The Almo's business plan, like those for transfer associations, would have to allow for all the investment that it needs to carry out. Put in this position, prudential borrowing would start to be a much more meaningful freedom than it is now.

A big difference between associations and Almos is that the former own their houses. However, Almos are not seeking stock transfers as part of their list of freedoms. What they do want is to be able to reinvest the proceeds from asset sales. Many are severely affected by the right to buy, especially as their stock becomes more desirable. Further restrictions on sales are off the political agenda, but they might win the argument to be able to control more of the capital receipts, which of course associations already do.

This ticks off half the list in our box, but inevitably leaves some very tricky challenges if the full run of freedoms is to be gained. Borrowing outside the public sector and borrowing against assets or against revenue streams are, of course, two of the main reasons why stock transfers take place. But Almos don't want to own their assets and be independent in the same way as housing associations. The key to this freedom might therefore be to show that, in the extreme situation of business failure, it would be the private sector rather than the council that would step in to sort things out.

This might be possible if Almo borrowing was direct from the private sector, and it seems that this might be feasible without a stock transfer. An arrangement would be needed between the council, the Almo and the lender, enabling the latter (as a last resort) to take charge of the revenue stream. Paradoxically, in future this might even make Almos more independent than associations, whose status has been called into question by a recent European Union ruling – that they are 'public bodies' for certain purposes because of the Housing Corporation's extensive powers of intervention.

Which brings us back to the access that Almos now have to social housing grant, and their need in many cases to build new homes (for example, to replace ones lost through right to buy). If they could borrow privately, access to the grant would be much more meaningful, as they could raise the other finance themselves (as associations do). They might, for the first time for many years, be able to build new council houses.

However, this is not the heart of the argument. The real prize is not about new build, which is likely to stay small scale, but about regeneration. Inner-city stock transfer associations, such as Poplar Housing and Regeneration Community Association in Tower Hamlets and Optima in Birmingham, have transformed the estates they took over, by investing in schools, community facilities, jobs and the environment in ways that Almos can only dream about.

If Almos could reconfigure their business plans to achieve this kind of regeneration, alongside the physical improvements represented by the decent homes programme, they could get a lot closer to their goal of fully sustainable communities. This might involve, as in Leeds West, demolishing and partially replacing existing unpopular stock, rather than automatically improving it to the decent homes standard.

Where does this leave housing associations in areas where Almos now run the council housing? Are these changes a threat or a challenge? Almos could in future have much greater financial muscle, but this should please associations, not frighten them. After all, many associations have development expertise, which councils lost years ago. Real partnerships might be possible where associations create the stock for organisations to manage, as Derwent Living (an association) might be about to do for Derby Homes (an Almo).

Stock rationalisation might be feasible in areas where both associations and an Almo authority own existing stock, as is being considered in Bolton. Associations already engaged in regeneration might share their expertise in new partnerships. Black and ethnic minority associations could have a new role in helping Almos engage even more with minority communities.

And what does this mean for the shape of social housing as a whole? Even if Almos gain many of the freedoms that associations now have, this does not mean they will become the same 'animal'. They want the close relationship with their parent authorities to remain in place and they will continue to identify with a limited geographical area. Tenants play a strong role on Almo boards and chief executives hope that any reforms will give them the same opportunities to improve the service to tenants as housing associations.

Whether any of these reforms will happen is a tough call, depending on the outcome of the ODPM review, which is now likely to be held up by the general election. The Treasury and the local authorities will also have to be convinced that any changes are worth it. Perhaps the most convincing argument for ministers is that they have advocated the Almo option as a long-term reform for council housing that doesn't involve transfer. Will they ensure that this continues to be attractive by ensuring the organisations can deliver more than decent homes? That is still an open question.

John Perry is policy adviser at the Chartered Institute of Housing. The National Housing Federation's housing finance conference is being held at the University of Warwick on March 16—18